People walk by the New York Stock Exchange on June 15, 2012 in New York City. Bankers, businesses and investors around the globe are waiting to see the outcome of Sundays election in Greece which could see the leftist party Syriza come to power and hasten a Greek exit from the euro. That outcome could spread financial turmoil throughout global markets. (Getty Images/AFP)

World stock markets sank Thursday amid ominous signs that debt market turmoil roiling Spain is threatening Italy, which as the eurozone's third-largest economy is considered too big to bail out.

Spain's 10-year bond yield — a key indicator of a country's creditworthiness — rose to near 7 percent, a euro-era record for the country, after Moody's downgraded the country by three notches. Madrid accepted up to €100 billion ($125 billion) in loans to rescue its banks, but investors are worried the government may be unable to repay the money.

The country paid a worryingly high 6.1 percent on 10-year bonds in an auction. Italy's overall debt is an enormous €1.9 trillion ($2.4 trillion), requiring frequent market access to repay investors whose bonds are expiring. To lower that debt, the economy needs to become more competitive, but it so far remains in a deep recession.

Wall Street appeared headed for a choppy session, with futures swinging between gains and losses. Dow Jones industrial futures was nearly flat at 12,421 while and S&P 500 futures were nearly unchanged at 1,308.18.

Despite concerns in Europe, Greek stocks were rallying hard on hopes that the election on Sunday would yield a government that would stick to the country's bailout terms and secure its membership in the euro currency union. The Athens index was up a stunning 8.8 percent, with banks stocks leading the way.

"This week was always going to be a volatile one, and thus far it's playing out perfectly to script," said Cameron Peacock, IG markets analyst. "The Greek election will undoubtedly be seen as a landmark event in history, as it goes to the core of Greece's continuation in the eurozone and the fate of the region itself. "

If political parties are elected that favor reneging on the program — considered by many Greeks to have imposed intolerable hardships — the country's international bailout and its membership in the 17-nation euro currency union would be at risk.

Apart from the financial maelstrom in Europe, investors are also worried about the pace of growth in the U.S. and China, the world's first- and second-largest economies.

Investors have been holding on to hopes that both countries' respective central banks will provide some type of stimulus.

Dickie Wong, executive director of research at Kingston Securities Ltd. in Hong Kong, said he expects the Fed might renew its "Operation Twist" program under which it sells shorter-term securities and buys longer-term bonds to keep their rates down. The current program expires at the end of June.

The Fed has also done two rounds of bond purchases to try to lower long-term interest rates and encourage borrowing and spending.

"The market highly expects the Fed will take some steps to stimulate economic growth," Wong said. "Next week's Fed Open Market Committee meeting will be the last one before Operation Twist ends, so I think they will introduce some kind of new measure."

Benchmark oil for July delivery was up 11 cents to $82.74 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 70 cents to finish at $82.62 per barrel on the Nymex on Wednesday.

In currency trading, the euro fell slightly to $1.2569 from $1.2589 late Wednesday in New York. The dollar fell slightly to 79.21 yen from 79.33 yen.